Estimates low for 9 quarters

Grant Hill link has opened door to suburban consumers

Sporting goods

As hot-stocks maven Dan Dorfman's recent problems run, it (( wasn't much. But his May 1 prediction that Fila Holding S.p.A. stock could drop to $45 by fall is shaping up as a $500 million mistake.

People laugh at Dorfman now, but underestimating Fila has practically been a Wall Street art form. And this month, the few remaining Fila skeptics have paid more dearly than ever.

Analysts' profit estimates have proven too low for nine straight quarters -- often way too low. Two years ago, even Fila's own investment bankers recommended the shares only tepidly at $15. They're at $86.50 now. Oops.

Five days after Dorfman predicted Fila would sputter by fall, the company said first-quarter profits jumped 85 percent -- and orders for fall delivery were up 40 percent from last year, promising more big earnings ahead.

Fila stock, which fell after Dorfman's report to $65 from $68.50, took off as never before, climbing $23.25 in three weeks to reach $88.25 Friday before falling back.

So as Fila USA general manager Robert W. Liewald heard the CNBC commentator's name over an international phone wire, his involuntary smirk was audible from Amsterdam.

"Wrong," he said.

Fila is the sneaker business' new diaper dandy. Sales that were $188 million in 1991 will cross $1 billion this year.

Its first Grant Hill-endorsed shoe sold 1.5 million pairs last year. Its stock is more expensive than Nike Inc.'s and almost twice as pricey as the overall market, and Fila's success is a big factor in the struggles of Reebok International Ltd., whose chief executive has promised to quit if he can't turn things around.

Is it too much too soon? The sneaker business certainly has seen flashes in the pan before, in the near-collapse of once-hot brands like L. A. Gear or Reebok's stubborn slump. Is this year's diaper dandy inevitably next year's sophomore slumper?

"The temptation was very easily to say this is like L. A. Gear or British Knights -- it's like the flu, you get it and you get over it," Liewald said. "But we're here to stick, and I think the retailers agree."

He says FootAction is buying 40 percent more from Fila this year than last. And having been in Baltimore 10 days ago to see the spring 1997 lines, Daly says Foot-Action will be giving Fila even more business.

"At least as much [increase] as it was in 1996 over 1995, so you're looking at another 40 percent," he said.

Now anchored in the basketball shoe market, Fila is pushing hard into cross-training and running markets where it was not a credible player until recently.

Its clothing business is growing even faster than the bigger shoe division, and its foreign sales are growing faster than U.S. operations.

"As retailers talk about it and put it in stores, it turns on light bulbs," Gruntal & Co. analyst Susan Silverstein said. "The stock trades on expectations, and expectations are that the company will keep growing."

There is a long way and a short way to describe how Fila has vaulted from obscurity since 1991.

The long list would include the fact that hip-hop culture's breakout to suburban America played to Fila's existing strengths in creating black-oriented styles; astute marketing; and marked improvements in management since Liewald came to Fila in 1995 from Woolworth, whose FootLocker, Lady FootLocker and other athletic-shoe chains give Fila 18 percent of its worldwide business.

The short answer can be two words: Grant Hill. The roughly 3 million pairs of Fila's two Hill signature shoes sold so far only scratch the surface.

For a company once tagged with an image as an inner-city shoe, the Detroit Pistons star has been the centerpiece -- not the only piece, but clearly the core -- of a strategy to gain entree to the suburbs, where the bulk of the bucks are.

It has worked. Liewald said 60 percent of Fila's U.S. business now comes from the suburbs, up from 35 percent a few years ago.

For a shoe that, as Liewald observed upon his arrival, no one took seriously as a workout shoe and no one would pay top dollar for, Hill also offered high-profile validation that Filas could be more than a fad -- could be, for the first time, worth $100 a pair.

"They're still primarily seen as a fashion company," said John Horan, editor of Sporting Goods Intelligence, a suburban Philadelphia newsletter. He says even Fila's top-of-the-line Hill and Jerry Stackhouse shoes aren't "bells and whistles performance shoes" like high-end Nikes.

"They're trying to expand what their brand means, but they're not really getting away from what they do," Horan said. "Any time you try to out-Nike Nike you're asking for trouble."